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Budget 2017: The Indian IT/BPM Sector Needs Policies To Propel Growth

Wednesday, January 25, 2017 | Online

By Partha DeSarkar CEO, Hinduja Global Solutions

Union Budget 2017-18 is going to be one of the most critical budgets since 1991, coming on the back of demonetisation, the shifting global protectionist movement and India set to race past China as the fastest growing major economy in the world.

The country's prospects look very encouraging, with high overall business sentiment, driven by a number of reforms introduced by the government since 2014. I expect the upcoming budget to continue in the same vein—aligned towards growth.

The Indian IT/BPM (business process management) sector has been instrumental in driving India's economic growth. However, it has been facing some challenges in recent years—an extremely competitive global business environment, political perplexities and protectionist sentiments, a shaky financial market, and a need to constantly innovate... not to mention taxation issues. The sector has been treading cautiously and is constantly reassessing its business strategies to be on top of the game.

In this scenario, we would welcome key policy changes from the Centre, especially in areas related to tax rationalisation and ease of doing business. We expect clarity on introduction of GST, rationalisation of tax structure, transfer pricing issues, etc., to enable inward investments in India. The Financial Act 2016 in the last budget started the course of eliminating various deductions and also reduced the rate of tax to 29% in a certain class of domestic companies. The upcoming budget will bring to light whether implementation of the deductions will reduce corporate tax and how much of the same will actually benefit corporate tax payers.

To further facilitate ease of business, a binding guidance note with illustrative examples will make the General Anti-Avoidance Rule (GAAR) an effective anti tax-avoidance tool, rather than being just another rule in place leading to another channel of litigation. Place of effective management (POEM) is a very tough yardstick, given the business efficacies and nuances, thus creating tax uncertainty for genuine business activities. It may be advisable to bring in Controlled Foreign Corporations rules (CFC rules) along with GAAR instead of POEM, as it would cover a wider spectrum of companies (listed and unlisted), and transactions such as interest, dividend etc., parked outside India, with the related parties not being repatriated.

With demonetisation, the government is working towards a cashless or digital economy, which is a great move. By 2020, India is expected to have 730 million internet users, with 75% of new user growth expected to come from the rural hinterlands. A focused digitisation policy can be a great disruptor by changing how we work and the way businesses in India operate; it will also impact overall end-customer experience. However, prudent measures must be implemented for the creation of an ecosystem that fosters growth and greater transparency.

From BPO to BPM, this sector has changed considerably over the last decade. With this transformational growth, the demand for humanpower resources has increased while the requirements of particular skillsets have evolved. A consensus to make skill development opportunities available to cross-sections of society and across the country, especially in tier II and III cities, is the need of the hour. The present government has been making efforts to improve the skills of youth, initiating programmes that will boost skill development and generate employment. The budget should bring in more policies that will facilitate an industry-ready workforce and job creation. The setting up of the Skill India Mission and Indian Skill Development Services (ISDS) is a right step towards addressing these issues and the upcoming budget should put more impetus on such schemes.

To conclude, the overall expectations in India—both by business and the common citizen—are a tall order and the government has a big task ahead. It is critical that they work on priorities—pushing inclusive growth in India while building an industry-friendly milieu. Mature planning will enable a thriving environment and it is imperative that credible policies are implemented to propel growth.

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